The sticky-wage model Assumes that firms and workers negotiate contracts and fix the nominal wage before they know what the price level will turn out to be. The nominal wage,w,they set is the product of a target real wage,o,and the expected price level: W=@x Pe W =0X CHAPTER 13 Aggregate Supply slide 4 CHAPTER 13 Aggregate Supply slide 4 The sticky-wage model ▪ Assumes that firms and workers negotiate contracts and fix the nominal wage before they know what the price level will turn out to be. ▪ The nominal wage, W, they set is the product of a target real wage, , and the expected price level: W e =  ω P W P e ω P P  =  1